An Evaluation of Industrial Heterogeneity in the Trade Effects of the Korea-U.S. FTA

This study rigorously estimates the direct trade effects of the KORUS FTA on national-level total trade and 170 industry-level bilateral flows. Utilizing a Poisson Pseudo-Maximum Likelihood (PPML) structural gravity model with three-way fixed effects, the analysis finds that while the FTA expanded aggregate trade by 33.4%, this figure masks extreme heterogeneity and asymmetry at the sectoral level. Specifically, 71 industries showed statistically significant expansion (81%–109%), while 31 experienced contraction (39%–49%). A pronounced asymmetry was observed, as the expansionary effect on Korean exports to the U.S. (35.4%) somewhat outperformed that of imports (31%). Categorizing industries into four types—two-way, one-way, unilateral, and no trade effects —the study identifies a dynamic intensification of effects over time, driven by staged tariff schedules and comparative advantage-based adjustments. These results highlight that aggregate data may not fully capture the specific realities like import substitution. Thus, a refined analytical framework accounting for heterogeneity and dynamic evolution is imperative for accurately evaluating and formulating effective FTA-related economic policies.